Mixed Results in Canada’s Attempts to Move into Manufactured Exports

After oil and other commodity prices reached a peak in mid-2014, Canada has attempted to transition some of its economic energy toward non-energy exports, such as manufactured goods. The positive results of that effort are just starting to trickle in and remain mixed overall, according to an analysis by Wells Fargo.

Recent data analyzed by the bank show these efforts have been somewhat stymied, as represented by a poor October GDP figure and the biggest one-month drop in manufacturing in that month in about three years.

December data point to some firming prices in the Canadian manufacturing sector, though not as much as economists had anticipated, said Tim Quinlan, senior economist with Wells Fargo. The industrial product price index grew 0.3% in November, despite a consensus expectation for a 0.7% increase, while raw material prices fell during the month by 2%—also a larger decline that expected.

Not everything is bad in the near term, however. In December 2016, Canada reported its first trade surplus since 2014 as export volumes increased 3.5% for the month and import volumes declined by 0.3%. “This is quite a turnaround from the record deficit of more than CA$4 billion just two months prior,” Quinlan said. Nonenergy exports jumped 4.7%.

Meanwhile, Canadian jobs grew by 53,700 in December 2016, mostly driven by full-time job growth that was the largest reported since 2012, Wells analysts said.

Wells’ prediction for Canadian GDP growth is 1.9% for both this year and the following. “These latest figures are a welcome improvement and highlight how exports could go from a headwind, as it has been for the past couple of years, to a tailwind in the years to come,” Quinlan said. “That said, we remain cautious on the macro outlook as high consumer debt levels and overheated housing prices, at least in some markets, weigh on the broader outlook.”

– Nicholas Stern, editorial associate

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